Close Close
ThinkAdvisor

Financial Planning > UHNW Client Services > Family Office News

Goldman: What Family Offices Do Differently

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Family offices benefit from a lack of defined investing timelines and the absence of outside interference.
  • Their outsized exposure to alternative investments reflects their higher return hurdles, patient capital pools and professional diligence capabilities.
  • Amid the possibility of a prolonged low-rate environment and higher inflation, many family offices are reaching for higher returns and higher risk,

Family offices are agile and largely unconstrained investors, with a fair degree of flexibility in managing and preserving their wealth. In a new survey of family offices around the world, Goldman Sachs identified how they take advantage of these inherent characteristics. 

The survey found that family offices tend to be more aggressive in seeking superior returns, but are also more oriented toward the long term, given their lack of defined investing timelines and the absence of outside interference.

The study involved some 150 family offices, of which 54% were in the Americas, 23% in Asia and 23% in Europe, the Middle East and Africa. Eighty percent of participants disclosed their total asset base:

  • $5 billion or more: 22%.
  • $1 billion to $4.9 billion: 44%.
  • $500 million to $999 million: 20%.
  • $250 million to $499 million: 7%.
  • Less than $250 million: 6%.

Asset Allocations

The study found that family offices had an average 31% allocation to public equities. GS said this bias toward public market equities is largely consistent with that of ultra-high-net-worth individuals, and may be partly attributable to the concentration of wealth in companies that have since gone public.

What’s remarkable in the survey results is family offices’ outsize exposure to alternative investments, on average a 45% combined allocation to private equity, real estate, private credit and hedge funds. 

GS said this reflects their higher return hurdles, patient capital pools and professional diligence capabilities. 

The average global respondent’s allocation to cash and fixed income stands at about 19% of the portfolio. GS said maintaining an allocation to cash and cash equivalents may allow family offices the flexibility to act quickly as opportunities arise and to meet capital calls for their private equity investments. 

About two-thirds of respondents are thinking about a prolonged low-rate environment, and a similar number are monitoring inflation, according to the survey. In both cases, many family offices are reaching for higher returns and higher risk; for example, 72% said they would increase their allocation to equities.

Forty-four percent of family offices that are focused on low rates said they are considering investments in operating businesses, and 55% of those who are thinking about a potential rise in inflation are investing in hard assets, such as real estate.

Investment Themes

Nearly all survey participants reported that they have at least some exposure to private equity. Many family offices invest in private equity through both funds and direct transactions, but a greater percentage of respondents in Europe, the Middle East, Africa (EMEA) and Asia than those in the Americas said they invest through managers.

Sixty percent of family offices reported that they invest directly in private real estate rather than through managers. This hands-on approach is particularly evident among those with ample experience in owning and operating real estate, GS said. Other family offices look to invest through managers who can execute at scale.

Venture capital investing continues to be top of mind among family offices, directly and through funds, with more than 90% of respondents globally saying they invest in the space.

Respondents’ exposure to private credit is lower relative to other alternatives. GS noted, however, that there has been substantial growth in the private credit space in recent years.

A majority of family offices are moderately to extremely focused on implementing environmental, social and governance principles across their philanthropic efforts, workplace policies and investing strategy, with an especially sharp focus among EMEA respondents, according to the survey. 

GS said it anticipates that regulatory tailwinds, the next generation coming into investment decision-making seats, and technological and business innovation will be key catalysts for a continued shift to ESG investments.

Only about 15% of family offices globally and 25% in the Americas have exposure to cryptocurrencies, but almost half of those surveyed said they are considering initiating exposure in the future.

Among respondents with no current cryptocurrency exposure, their most-cited reason for caution stemmed from skepticism about cryptocurrencies as a store of value. 

Outside of cryptocurrencies, GS said it expects family offices to monitor the evolution and potential use cases for other digital assets and blockchain technology more broadly for future investment opportunities.